Bitcoin Miners Add Capacity Despite Dwindling Profits

The bitcoin price is trading in “no man’s land,” if you ask Fundstrat market technician Robert Sluymer. According to Sluymer, bitcoin must make its way back to the $6,300-$6,400 range to pave the way for a comeback. The current trading pattern is a setback for perhaps no group more than bitcoin miners, whose profits are directly tied to the bitcoin price. Bitcoin mining profits get slashed when the power consumption costs exceed that of the profits they earn from creating more coins.

The mining rigs are comprised of computer servers that command unique hardware and require constant cooling. At the start of 2018, the hashrate, which reflects mining power, was on the rise. Bitmain currently controls much of the hashrate, and Bitfury is another dominant player. While the dynamic has shifted since last year’s market boom, there is more capacity coming online despite the overall downtrend in cryptocurrency prices.

Vancouver, British Columbia-based clean energy company Solar Alliance is looking to capitalize on its cheap access to power by developing a bitcoin mining operation in Murphysboro, Illinois. They’ve teamed up with William Shatner of Star Trek fame for the initiative, who on CNBC last night likened the bitcoin mining process to that of mining for gold, saying:

We’re supplying power to the vast number of computers that are needed to mine for bitcoin. As in the gold mining rush days where miners would sit around and pan for gold …. we’re supplying the pickaxe for the mining of gold which is the electric power.” — William Shatner on CNBC 

There’s about 300 miles distance between the location of the abandoned plant that will house the bitcoin miners and the Windy City, though wind power doesn’t appear to be part of the blueprint, only solar. Nonetheless, Solar Alliance promises to provide “low-cost power to the cryptocurrency mining sector.” According to the recent announcement, “Solar Alliance is in discussions with several potential cryptocurrency mining tenants and expects to announce a hosting and colocation agreement in the near future.”

Breakeven Point

Fundstrat in a March report revealed the breakeven level for bitcoin mining based on their model — which is comprised of hash difficulty, hash power, number of coins in circulation, power consumption, power costs and more — is $8,000.

Based on electricity costs of US$0.03 kW/h, Morgan Stanley reportedly attaches a breakeven threshold for bitcoin mining pools at $8,600. With the BTC price hovering at $6,100, bitcoin miner profits have been dwindling and alternative energy-fueled mining operations is a more economical option on the surface, though Solar Alliance will most likely have to invest in the solar-panels to surround the 165,00 square-foot facility.

Meanwhile, Bitfury, which generates hundreds of millions of dollars per year from its BlackBox data centers for bitcoin mining, just expanded into Dubai. Hong Kong-based mining pool company BTCC Pool Limited, on the other hand, is selling nearly 50% equity in the business to Value Convergence Holdings Limited. BTCC’s hash power has reportedly been on the decline.

Featured image courtesy of Shutterstock. 

Gerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. She owns some BTC and ETH.